Less fear, more vision: unlocking investment in the SDGs

How will the world finance the huge investment needed to achieve the Sustainable Development Goals?

Daudi Lelijveld

Director, CDC Group

Daudi Lelijveld is a director at CDC Group, the UK’s development finance institution (DFI). With a total portfolio of $5.3 billion, CDC Group’s mission is to support businesses across Africa and South Asia.

Delivering the UN’s Sustainable Development Goals could lift billions of people out of poverty, help address the world’s most pressing environmental needs, and unlock at least $12 trillion of new market opportunities by 2030.

But there are challenges. When Unilever co-hosted a GlobeScan Leadership Forum in 2018 on Partnerships for the Goals, many of the 300 participating guests and expert contributors identified finance as a critical hurdle to the transformative partnerships needed to achieve the SDGs.

Daudi Lelijveld was one of those experts – and we’ve spoken to him to explore the topic further.

Daudi, you told the Leadership Forum that “we still have a long way to go before the markets we operate in [in Africa] are perceived as investible”. Why do you think this is?

A lot comes down to people’s attitude to risk – which needs to be rethought. When people say the risks involved in investing in places like Africa are higher than elsewhere, they often get two things confused: externalities and ‘controllables’.

From the point of view of ‘controllables’ – the risks that attach to your business plan – there shouldn’t be any difference. Whether you're doing a tech venture in Africa or in the UK – or starting an egg business for that matter – a good business plan is a good business plan.

The externalities are different.

If you invest in, say, the Eastern Democratic Republic of Congo (DRC), you are going into an area which is insecure and unstable.

But you can’t control that risk. You can’t even put a realistic number on it. So for certain pools of investment capital, when you have a mandate for capital preservation at portfolio level rather than returns, it makes sense to discount it to zero for some projects. Development finance institutions (DFIs) should be able to accept this, but it is often difficult even for them, due to competing pressures.

CDC Group is investing in Virunga Energy, a hydroelectric power project in a politically unstable jungle region of the Eastern Democratic Republic of Congo.

How does this apply to businesses and their role in supporting the SDGs?

Part of the cultural change that’s needed is around the timeframes in which people think of these risks.

People often think only in five-year terms.

Businesses have five-year plans, politics works on a four-to-five year cycle. But then, as parents, we are happy to bring people into the world and expect to experience a 60-year-plus cycle.

Multinationals can contribute to the SDGs through building their supply chains to include a genuine development element. That could take the form of a partnership. But many businesses do not take the longer-term view that’s needed to drive this through – largely because they are answerable to quarterly pressure from shareholders, who also put pressure on their returns, and hence their risk management processes and lenses.

So multinational business could unlock investment from, for example, DFIs, if they could show they were using it to mitigate the erosion of the expected shareholder return created by the time extensions needed to build and stabilise new supply chains, and to a certain extent the externality risk of developing local supply chains.

But it would need those businesses to do what they’re reluctant to do at the moment, which is to commit to the end of the journey. This is often unknown but might take 20 years. It also means accepting that once the stabilising period was over, they’d buy that risk back.

That would require some education of shareholders and a mindset change among the management teams – but I see signs the markets are ready for this sort of shift.

A turbine in operation at Virunga Energy. 4,000 households are already connected to this clean source of energy.

What else has to change to drive investments that support the SDGs?

People have to ‘pack away’ their fears at a personal level and let the relevant institutions carry the responsibility. This is critical but hard to do, because of human nature and the inherent professionalism of the people involved.

Some deals will inevitably fail. So we have to build a culture where the institution’s brand is carrying the burden of that reputational risk, rather than the individual.

This is really hard and counter-intuitive but absolutely critical if we are going to still have the smartest people doing the hardest things when it comes to development investing. I would like to think that at CDC, with our 70 years of existence, we are starting to get to this point.

Our investment in Virunga Energy (in North Kivu, DRC), for example – building a hydroelectric power station in the jungle and in a political void, where security is extremely challenging – would be hard to justify for most investors.

But the power station is trebling the amount of power available in Eastern DRC. We don’t yet know who all the users of that power will be – and there are still multiple layers of risks attached to the project. But the immediate benefit is already visible, with 4,000 more households connected and 180 small and medium enterprises growing sustainable businesses. The long-term benefit to the development of the region could be transformational.

How do we build partnerships for progress?

In March 2018, over 300 guests and expert contributors explored innovative partnership approaches to delivering the SDGs.